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Costco shareholders voted down an investor proposal from a conservative think tank that urged management to investigate the business risks of its diversity initiatives.

More than 98% of shares voted against the proposal, according to preliminary results announced by Costco chairman Hamilton “Tony” James. He and other board members had asked shareholders to reject the proposal involving the company's diversity, equity and inclusion policies ahead of Thursday's annual meeting.

"We owe our success to the more than 300,000 employees who serve our members every day. It is important that they all feel included and appreciated and that they transmit these values to our customers," James said.

Ethan Peck from the National Center for Public Policy Research – the right-leaning shareholder advocacy group that submitted the proposal – argued in a prerecorded message that DEI is "illegal, immoral and detrimental to shareholder value" and poses litigation risks for the company.

"By not hiring and promoting completely irrespective of race and sex ‒ in other words, by merit alone ‒ the company is not always hiring or promoting the best person for the job, and anything short of that is selling the success in the future of the company short, and therefore selling shareholders short," the message said.

The vote came just days after President Donald Trump used executive power to crack down on DEI.

Increasingly, companies are facing a DEI showdown at the shareholder ballot box.

Apple recently recommended investors vote against a shareholder proposal to eliminate the company’s DEI programs.

Right-leaning groups like the National Center for Public Policy Research and the National Legal and Policy Center say they bring shareholder proposals to counter liberal politics invading corporate boardrooms and advancing a “woke” ideological agenda that puts businesses at risk.

Seizing on the Supreme Court’s 2023 decision striking down affirmative action in college admissions to challenge corporate diversity policies, these groups are bringing more DEI-related proposals before investors.

While small, the number of anti-DEI shareholder proposals has more than tripled since 2020, according to the Conference Board. This proxy season, Walmart and Starbucks face similar proposals.

Peck, deputy director of the National Center for Public Policy Research’s Free Enterprise Project, said his group plans 40 shareholder proposals this year, 12 focused on DEI.

“Our shareholder proposal efforts are very much in tandem with the general pushback against DEI, in that both the general pushback and our proposals are about exposing how DEI is discriminatory and value-destroying,” he told USA TODAY.

Right-leaning investors advance shareholder proposals – even those likely to get low-single-digit support – to make a point and get attention. Like Costco, corporate boards usually recommend shareholders vote against them. The measures typically get less than 2% of shareholder support.

Trump's DEI executive orders increase business risks

Speaking to business leaders at the World Economic Forum in Davos Thursday, Trump called DEI programs "absolute nonsense."

His latest executive order to end DEI in the federal government and affirmative action in federal contracting sent shockwaves through corporate America. Trump said his administration would investigate corporations that don’t fall in line. That warning could fuel more shareholder activism over the potential legal and financial fallout from diversity initiatives.

JPMorgan Chase is one of the companies that may become a target.

When asked about a potential challenge to its DEI practices, CEO Jamie Dimon told CNBC’s Squawk Box: “Bring them on,” though he said he would listen to arguments about where JPMorgan Chase is getting it wrong “and make modifications.”

Facing a rapidly shifting political environment and under fire from conservative foundations, think tanks and political operatives, a growing list of major corporations have dialed back diversity efforts.

Some companies retreated from DEI commitments shortly before Trump took office. Among them was Facebook and Instagram owner Meta as CEO Mark Zuckerberg looked to align his social media company with the Trump administration.

Costco, Apple and others reject anti-DEI shareholder proposals

Those rollbacks have critics who say companies are making shortsighted decisions that could undermine their businesses.

Among them is the progressive shareholder advocacy group As You Sow, which issued a 2023 report showing a “statistically significant correlation” between diverse management and eight key financial metrics.

“These are businesses that have existed longer than four years. We expect them to exist beyond this four-year window in front of us,” said Meredith Benton, principal founder of Whistle Stop Capital, which consults with As You Sow on DEI. “What we want to see is them making decisions that are in their business interests over the long term.”

Some companies are standing by their DEI programs. None have defended those programs quite as vigorously as Costco.

The National Center for Public Policy Research submitted the shareholder proposal, arguing that Costco’s DEI initiatives hold “litigation, reputational and financial risks to the company, and therefore financial risks to shareholders.”

Costco’s board of directors voted unanimously to recommend shareholders reject the measure, arguing that diverse employees and suppliers fuel innovation in the merchandise it stocks and the services it offers.

“Our commitment to an enterprise rooted in respect and inclusion is appropriate and necessary,” the directors said. “The report requested by this proposal would not provide meaningful additional information.”

Costco CEO Ron Vachris also defended those practices to a concerned shareholder, saying his company does not use hiring quotas but focuses on giving all workers the same opportunities.

“If these are the policies you see as offensive, I must tell you I am not prepared to change,” Vachris wrote in the exchange viewed by the Wall Street Journal.

Stefan Padfield, director of the National Center for Public Policy Research’s Free Enterprise Project, said Costco’s “defiant” response to a “perfectly reasonable shareholder request” was out of line.

“Simply asking shareholders to trust the status quo at Costco is insufficient,” Padfield told USA TODAY. “This is a rapidly changing landscape in terms of law, regulation, and market sentiment, and shareholders accordingly have good reason to ask for a review of practices, legal advice, and managerial information gathering and processing.”

This article originally appeared on USA TODAY: Costco shareholders reject anti-DEI proposal. Here's why they did.